Inflation hits record in Europe, and countries help pay for fuel

Electricity, food, clothing, fuel and services: In the last 12 months, prices have risen for almost everything in the European Union.

In the euro zone, the annual inflation rate — which compares a month’s result with that of the same period a year ago — hit a record 5.1% in January, according to Eurostat (the EU statistics office). .

It is the highest value since the beginning of the historical series, in 1997.

While all Member States were affected, there are significant regional differences, with Lithuania (12.2%), Estonia (11.4%), Belgium (8.5%) and Slovakia (8.5%) recording the highest rates. highest in the period.

Paschal Donohoe, president of Ecofin (a council that brings together the ministers of Economy and Finance of the euro zone), acknowledged that “high inflation is affecting growth and the purchasing power of citizens’ incomes”.

Donohoe, who is Ireland’s finance minister, considered that, on the other hand, the price increase had not yet caused deep structural damage.

“There are so far no signs of significant second-round effects from wage increases, and inflation is expected to start to decline this year and subsequently fall below the 2% target in 2023,” he said in a statement to the European Parliament.

The rise in prices in Europe was mainly driven by rising energy costs — electricity, gas and oil —, which also impact costs in other sectors, such as food and transport.

Professor at Nova SBE (Faculty of Economics and Business at Universidade Nova de Lisboa), Pedro Brinca says that the energy transition underway on the European continent, combined with geopolitical issues, has great weight on the price of energy.

“In Europe, we are progressively ending coal and nuclear power plants. This increases our dependence on the production of renewable energy and natural gas from Russia”, he says.

The economist points out that the weather conditions of the last two years — relatively harsh winters that led to greater energy consumption, in addition to the production of energy from renewable sources at a lower than expected level — also contributed to the rise in prices.

“We use a lot more natural gas than would be normal, and the price started to rise. Europe is very dependent on Russian supplies. And Russia, for geopolitical reasons, decided not to increase supply, despite the strong increase in demand. . Faced with such great demand, obviously prices soared”, says Brinca.

According to official European data, Portugal appears to have an annual inflation rate below the eurozone average. The 3.4% registered in January represents the second lowest rate among the countries of the single currency, behind only France, with 3.3%.

Even so, there was a transversal increase in prices in almost all sectors in the country. The effects particularly hit the growing share of the population that receives the minimum wage.

Recently readjusted to €705 (about R$4,300), Portuguese base pay remains one of the lowest in Western Europe.

A hospital employee in the Lisbon metropolitan region, Malvina Matos, 41, is part of the contingent of around 25% of Portuguese workers who receive the minimum wage.

“They increased the light, increased the gas and increased the food. Now, we go to the supermarket with €20 [R$ 120] and we practically don’t bring anything”, says she, who lives alone with her two young daughters.

Rising prices made the family cut back on non-essential products at the supermarket. “Clothes, with the exception of underwear, I haven’t bought clothes for over a year either,” she says.

Among the main difficulties reported is the inability to deal with an eventual unforeseen event. “There are months that are very complicated, because if there is a mishap, it’s extra money that has to come from somewhere”, he adds.

The impacts of inflation are also already affecting the middle class.

In Portugal for just over three years, Portuguese-Brazilian publicist Henrique Lira, 32, gave up on the idea of ​​buying a new car in mid-2021. Now, he says he no longer knows whether or not he will go for a used one.

“Prices have gone up a lot since 2020. I think the Portuguese used market is out of touch. It’s unbelievable that they charge €10,000 [R$ 60 mil] for a 12-year-old car with more than 120,000 kilometers driven.”

In addition to the domino effect of costs associated with production, the automotive industry is also particularly hit by the global shortage of semiconductors, due to the breakdown of the production chain with the pandemic. With higher prices and long waits to get zero-kilometer vehicles, the sales value of used vehicles has skyrocketed.

The National Association of the Automobile Industry estimates that the price of used cars in Portugal has increased by around 10% in the last year.

As in the rest of Europe, fuels also showed strong appreciation in Portugal. Driven by the soaring prices of a barrel of oil on the international market, the price of gasoline rose by 19%, while that of diesel rose by 21% in 2021.

The pressure made the government apply, since November, an extraordinary discount of € 0.10 (R$ 0.61) per liter of fuel supplied.

The measure is limited to 50 liters per month, which is equivalent to a maximum discount of €5 (R$ 30.5) per month.

In France, the government also adopted a policy of reimbursement to the population due to the increase in fuel prices. Those who receive less than €2,000 net (about R$12,200) were entitled to a check for €100 (R$610) to help with the increase in fuel costs.

Faced with rising prices across the continent, the president of the European Central Bank, Christine Lagarde, changed the tone of her speech in relation to a possible increase in interest rates in the EU and did not rule out this possibility.

Lagarde, however, said that a more in-depth decision on the inflationary surge in Europe will only be analyzed in March.

In recent weeks, central banks around the world have been tightening monetary policy. In January, the Fed (Federal Reserve, the US central bank) indicated that in March it will start raising interest rates to curb inflation, which hit 7% last year, the highest rate since 1982. On Thursday (3), it was the UK’s turn to announce a rate increase.

So far, the ECB has opted for a cautious stance, reiterating that inflationary pressure in the European Union has different characteristics from others.